Puma Biotechnology, Inc.
Q1 2018 Earnings Call Transcript

Published: 9 May 2018

[Operator:]

Good afternoon. My name is Rob, and I'll be your conference call operator today. At this time, all participants are in a listen-only mode. After the speakers' formal remarks, there will be a question-and-answer session. As a reminder, this call is being recorded. I would now like to turn the conference over to Mariann Ohanesian, Senior Director of IR for Puma Biotechnology. You may begin your conference.

[Mariann Ohanesian:]

Thank you, Rob. Good afternoon and welcome to Puma's Conference Call to discuss our Financial Results for the First Quarter of 2018. Joining me on the call today are Alan Auerbach, Chief Executive Officer, President and Chairman of the Board of Puma Biotechnology; Steven Lo, Chief Commercial Officer; and Charles Eyler, our SVP of Finance and Treasurer. After market close today, Puma issued a news release detailing first quarter 2018 financial results. That news release, the slides that Steve 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. Before I turn the call over to Alan for an overview of our performance and operations, I would like to point out that during this conference call, we will make forward-looking statements within the meaning of federal securities laws. All statements other than historical facts are forward-looking statements and are based on our current expectations, forecasts and assumptions. Forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from the anticipated results and expectations expressed in these forward-looking statements. These risks and uncertainties are identified in our Annual Report on Form 10-K for the year ended 12/31/2017, our Quarterly Report on Form 10-Q for the quarter ended 03/31/2018 and any subsequent documents we file with the SEC. 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 9, 2018. 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 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 2018 news release for a reconciliation of our GAAP and non-GAAP results. I will now turn the call over to Alan.

[Alan H. Auerbach:]

Thank you, Mariann, and thank you all for joining our call today. We are pleased to report that sales of NERLYNX, Puma's first approved product, have grown steadily since launch. NERLYNX was approved by the U.S. FDA in July 2017 for the treatment of patients with early stage HER2-positive breast cancer, who have previously been treated with a trastuzumab-containing regimen. Today, we reported NERLYNX net sales of $36 million for the first quarter of 2018, which represents a sequential increase from the $20.1 million in sales reported in the fourth quarter of 2017. In a moment, I will turn the call over to Steve Lo, Puma's Chief Commercial Officer, who will provide an update on NERLYNX launch-related activities and detail of our commercial progress in the U.S. to-date. In June 2016, we submitted a Marketing Authorization Application to the European Medicines Agency for neratinib for the extended adjuvant treatment of early stage HER2-positive breast cancer. As previously reported, the Committee for Medicinal Products for Human Use, also known as the CHMP, adopted a negative opinion on the NERLYNX MAA, recommending the refusal of Marketing Authorization for NERLYNX. In March, Puma requested a reexamination of that opinion, and we expect to receive a response from the CHMP around mid-year and more specifically in the late June, early July timeframe. We look forward to several additional clinical milestones for neratinib. We anticipate reporting updated Phase I/II data from the ongoing clinical trial of neratinib in combination with KADCYLA, also known as T-DM1, in HER2-positive metastatic breast cancer in the second quarter at the American Society of Clinical Oncology Annual Meeting. In addition, as investors are aware, we have an ongoing Phase III trial of neratinib in third-line HER2-positive metastatic breast cancer also known as the NALA trial. On last quarter's call, we announced that the event rate in the trial was coming in slower than we anticipated. The event rate has continued to come in much lower than was originally projected. Assuming that the event rate continues at the current rate that it is right now, we do not expect to be able to report data from this trial until the fourth quarter of 2018. This assumes that the event rate continues to come in at the current rate that we are seeing. If the event rate slows down even further, we would not be able to report the data from this trial until 2019. We will continue to provide investors with anticipated timing of this trial in future updates. We also anticipate submitting for regulatory approval of NERLYNX for the extended adjuvant HER2-positive early stage breast cancer indication in additional countries in the second half of 2018. In addition, we expect to report additional data from our Phase II CONTROL trial involving the use of colestipol with or without loperamide prophylaxis on neratinib-associated diarrhea in patients with HER2-positive early stage breast cancer in the fourth quarter of 2018. I will now turn the call over to Steve Lo, who will discuss our U.S. commercialization strategy and progress to-date for NERLYNX. Steve will be followed by Charles Eyler, who will highlight key components of our financial statements for the first quarter of 2018.

[Steven Lo:]

Thank you, Alan. I am pleased to discuss the progress we have made with the launch of NERLYNX. We are now nine months into actively promoting NERLYNX. We had a very strong quarter and look forward to continuing this momentum. First of all, a reminder that during my presentation, I will be making forward-looking statements. As you may recall, we set up a network of six specialty pharmacies who provide NERLYNX directly to the patients. These specialty pharmacies conduct benefit investigations, obtain a prior authorization approval from the insurance company, and then arrange with the patient to ship NERLYNX to their home. We have also established a separate specialty distribution channel, where the prescription does not need to be sent to the specialty pharmacy. This helps to facilitate the ability for certain patients to obtain NERLYNX directly from their physician's office, integrated health systems and also the VA. Also, we have our Puma Patient Lynx services, which helps patients with co-pay and financial assistance and provides physician offices with reimbursement support. Later in the call, Charles will review the full financial results, but I will now provide you with the sales results since FDA approval. In slide 4, you see quarterly net sales of NERLYNX since FDA approval. As Alan mentioned, we had a very strong quarter with net revenue at $36 million, an increase of 79% from the prior quarter. This growth was the result of more patients being prescribed NERLYNX and refilling their prescriptions, along with the increase of prescribers becoming more aware of NERLYNX. This chart is both specialty pharmacy and specialty distribution channels. Furthermore, if you see in slide 5 the monthly and cumulative net sales of NERLYNX through the month of April, I have included the April's estimated net sales. We are pleased to see month-over-month sales growth and believe this is indicative of the continued strong demand for NERLYNX. This slide shows a snapshot through April 30 of specialty pharmacy prescriptions. Please note this is from our specialty pharmacy channel only and does not capture NERLYNX usage through the specialty distribution channel, because we do not receive that prescription data. The specialty pharmacy channel represents approximately 88% of the total unit volume. From FDA approval through April 30, over 2,400 new patient prescriptions have been received by the specialty pharmacies. Of those, over 2,100 patients have received at least one shipment of NERLYNX, 159 patients are in process, which means they could be awaiting a prior authorization approval from their insurance company or scheduling a delivery. We are encouraged to see many patients are also receiving their refills in a timely manner. The specialty pharmacies actively reach out to patients during the first month on NERLYNX to counsel them and provide patient support. So far, we have seen 502 patients discontinue NERLYNX, which is a 23.7% discontinuation rate. Because this is unique specialty pharmacy data, if a patient transfers to another specialty pharmacy or to physician office dispensing or delays therapy for personal reasons such as travel, this could be classified in the specialty pharmacy system as a discontinuation. We have conducted monthly audits of this data and believe the discontinuations due to adverse events is only half of the total discontinuations or approximately a 12% discontinuation rate due to adverse events. In terms of new patient prescriptions in the specialty pharmacy channel, you will see in slide 7 growth since launch. Since we opened up the specialty distribution channel, there may be months where the ratio of patients going through specialty pharmacies and in-office dispensing can vary. We did see a small dip in the first part of April, but are already seeing a recovery at the end of the month. On slide 8, you will see both monthly and cumulative dispenses to patients shown as NRx and TRxs in the graph. The NRx's trend follows the new SP enrollment trend. We are very encouraged to see the steady growth of NERLYNX refills, which has contributed to the continued growth of the TRxs. Please note that some patients are told by their physician to lower their dose to improve tolerability or stop and start NERLYNX due to side effects. This could result in not every patient refilling every four weeks, but every five to six weeks, but they do remain on the drug. We are also pleased to see that many patients receive NERLYNX in 10 days or less and 72% of the patients receive it in 15 days or less, which is a continued sign of a smooth reimbursement process. There are a small number of patients who choose to delay starting NERLYNX due to personal reasons such as travel. There are also a small number of patients who have been prescribed NERLYNX for off-label use such as metastatic cancer, which we do not promote or market, where the insurance company needs more information. These situations contribute to the longer times to fill shown on the right-hand side of the slide. Now, onto prescribers, there are now over 1,400 unique prescribers. The number of prescribers has grown over 50% in the last quarter. The number continues to grow and we are seeing those oncologists prescribe NERLYNX to more patients in their practice. Thus, we are seeing both breadth and depth of prescribers. Recall that our sales force has only been actively promoting NERLYNX since September. Therefore, as you see in slide 11, we continued to make progress in penetrating our target physician audience, increasing 57% in Q1. While we have made progress since launch, we have not fully penetrated our physician audience and there are still more opportunities to reach more physicians, especially increasing their awareness of diarrhea management options. To summarize, we are highly encouraged with the progress we've made with physicians, payers and patients. We had a very strong quarter with a 79% growth in net sales. We continue to reach more prescribers and helping patients receive and stay on their medication. We are committed to ensuring all appropriate patients have access to NERLYNX. I will now turn the call over to Charles Eyler for a review of our financial results.

[Charles R. Eyler:]

Thanks, Steve. Let me start with a quick summary of our financial results for the first quarter of 2018. Please note that I will make comparisons to Q3 and Q4 of 2017, which we believe is a better indication of our progress in becoming a commercial company than year-over-year comparisons. For more information, I recommend that you refer to our 10-Q, which will be filed tomorrow and includes our consolidated financial statements. In the first quarter of 2018, we reported a net loss based on GAAP of $24.3 million or $0.65 a share. Our GAAP net loss for Q4 and Q3 of 2017 were $64.1 million and $77.2 million, respectively. On a non-GAAP basis, we reported a net income of $1.1 million or $0.02 a share for the first quarter of 2018. As Alan and Steve mentioned, net revenue from NERLYNX sales were $36 million versus $20.1 million for the fourth quarter of 2017. Our cost of sales for the first quarter was $6.4 million, which included the amortization of milestone payments to licensor of approximately $0.9 million. Going forward, we will continue to recognize amortization of the milestone payment to the licensor of $0.9 million per quarter as cost of goods sold. In the first quarter of 2018, we also recognized aggregate sub-license revenue of $30.5 million. For the fiscal year 2018, Puma continues to anticipate that NERLYNX net revenues will be in the range of $175 million to $200 million. This guidance includes majority of the revenue coming from the currently approved extended adjuvant indication only. SG&A expenses based on GAAP were $36.6 million for the first quarter of 2018, compared to $30.9 million and $32.5 million for the fourth and third quarter of 2017, respectively. Non-GAAP SG&A expenses were $27.6 million for the first quarter compared to $22.7 million and $24.2 million for the fourth and third quarters of 2017, respectively. Research and development expenses based on GAAP were $46.9 million for the first quarter compared to $50.2 million and $49.5 million for fourth and third quarters of 2017, respectively. On a non-GAAP basis, R&D expenses were $30.5 million compared to $32.9 million and $31.3 million for fourth and third quarters of 2017, respectively. Our net cash used in operating activities for the first quarter of 2018 was approximately $6.3 million compared to $36 million and $55 million for Q4 and Q3 of 2017, respectively. Our cash burn for the first quarter was approximately $3 million compared to cash burn of approximately $25 million and $45 million for Q4 and Q3, respectively. We anticipate continued reduction in our cash burn for the operating expenses throughout 2018 such that by the fourth quarter, we will have transitioned to cash flow neutral, cash flow positive. We ended the first quarter of 2018 with approximately $79 million in cash and cash equivalents. Per our license agreements with our sub-licensees, we received $30.5 million in upfront payments in the first quarter. In October of 2017, we secured a term loan of $1 million (sic) [$100 million] subject to funding in two tranches. The first tranche of $50 million was received on October 31 and is being used for general corporate purposes and to support NERLYNX commercial activities. Effective May 8, 2018, we amended the term loan, replacing the existing loan amount of $100 million with a new $155 million term loan subject to funding in two tranches. The first tranche of $125 million gross, which was received on May 8, will be used to retire the outstanding balance of the original loan of $50 million and for general corporate purposes. The second tranche of $30 million may be drawn at Puma's option subject to achievement of certain milestones. The loan will mature on May 1 of 2023. Overall, we continue to deploy our financial resources to focus on the advancement of neratinib through ongoing clinical trials and the commercialization of NERLYNX in the United States.

[Alan H. Auerbach:]

Thank you, Charles and Steve. Since we launched NERLYNX for the treatment of early stage HER2-positive breast cancer in the third quarter of 2017, we have continued to receive positive feedback from patients, prescribers and payers. We will continue to move forward with our plans to advance and expand our commercial activities for the balance of 2018 and beyond. This concludes today's presentation. We will now turn the floor back to the operator for Q&A. Operator?

[Operator:]

Thank you. We will now begin the question-and-answer session. Our first question comes from Cory Kasimov with JPMorgan Chase. Please proceed with your question.

[Cory W. Kasimov:]

(20

[Alan H. Auerbach:]

Yeah. We're happy to do that. So, the first week of April was extraordinarily low for some reason. I don't know if that was an anomaly or if that was due to any fundamental dynamic. We then saw a trend back up the rest of the month. And to give you a little more color, I would say we just got the new patient – the new patients coming into the specialty pharmacy and NRxs for last week. Those were more in line with what we were seeing in March.

[Cory W. Kasimov:]

Okay. All right.

[Alan H. Auerbach:]

So, it appeared to be – at this point, I would say it appeared to be a one-time dip. We'll obviously be continuing to watch it to see whether or not – which direction it goes.

[Cory W. Kasimov:]

Okay. That's helpful. And then, one quick follow-up with regards to the NALA Phase III study. I'm curious what you based the assumed event rate on. Was that basically from the pivotal TYKERB study or something else?

[Alan H. Auerbach:]

Yeah. The event rate was based on historical controls, if you will, and what we've been seeing in the trial is, whereas we're expecting a lot of months to see a double-digit number of events – and again, the endpoint to unblind (22

[Cory W. Kasimov:]

Okay. Thanks, Alan. I'll hop back in queue.

[Alan H. Auerbach:]

Sure.

[Operator:]

The next question is from Ying Huang with Bank of America Merrill Lynch. Please proceed with your question.

[Ying Huang:]

Hi, good afternoon. Thanks for taking my questions as well. So maybe, Alan, can you shed a little bit more light on the 23.7% discontinuation? We understand that, on the comments, half was due to AE. But can you give a little bit more detail about the half – the other half discontinuation? And then, I was wondering if you can tell us a little bit more about the new rapporteur who was assigned to the reexam? Do we know which rapporteur that is?

[Alan H. Auerbach:]

Okay. So, let me answer your second question, and then I'll hand it over to Steve for the other one. So, we have been assigned new rapporteurs for the reexamination of the MAA. I don't remember which countries they're from. But I do remember that it's different rapporteurs from what we had before and a different country than we had before.

[Steven Lo:]

Great. Hi, this is Steve. I'll answer the discontinuation question. So, in answer to your question, yes, we do monthly audits on the discontinuations in our specialty pharmacy. So, only about half of those are attributed to adverse events such as diarrhea. The other half attributes to classifications that the specialty pharmacy will designate (23

[Ying Huang:]

Okay. Thank you.

[Operator:]

Our next question is from Kennen Mackay with RBC Capital Markets. Please proceed with your question.

[Kennen Mackay:]

Hey, thank you for taking the question. Wondering if there's any color you can provide about the potential gross to net in Q1 and to what extent you're seeing an impact from the donut hole there. And then, also I guess wondering about the 1,614 patients that are currently on active, that grew about 60% from what we'd seen at the end of January in the prior update. Wondering if that's sort of what we should be thinking about as sort of the run rate going forward, obviously, a big step-up in active treatment, or if there's any color you can help us with around maybe the discontinuation rate we should be expecting from those active patients given the, again, the bolus (25

[Alan H. Auerbach:]

Yeah. Hi, Kennen. So, let me answer the first two questions, and I need you to repeat the third one again. So, in terms of the gross to net, the gross to net in the quarter was 10.6%. And the reduction that you're seeing quarter-over-quarter in the gross to net is, as you know, we have a fixed payment that's in our cost of goods sold. So, obviously, as revenues increase, the hit from that cost obviously goes down. And turning to (25

[Kennen Mackay:]

Yeah. No, absolutely. Just looking at, I think, slide 6 here and comparing it to the specialty pharma enrollments or prescriptions from the prior update, it looks like the number of active prescriptions in the sort of yellow box there has increased to 1,600 from about 1,000 previously. And I'm wondering again if that's sort of what we should be anticipating is the sort of run rate of prescriptions going out to patients here or if, again, those prescriptions – those active prescriptions, that 60% increase, is something we should be anticipating to see a decent discontinuation rate from.

[Alan H. Auerbach:]

Okay. So, the number you see of the 1,600 active, as Steve mentioned that we're showing on that slide a 23.7% discontinuation rate. Not all of those are true discontinuations, because it could be that, for instance, you stopped getting the drug from one specialty pharmacy, you're getting it from a different one. So, one specialty pharmacy will say you discontinued, but you're actually getting it through a different one. Or we could have situations where patients, instead of getting it from the pharmacy, are now getting it from their doctor's office, right. So, they discontinued getting it through the pharmacy, so it shows up as a discontinuation. But they're getting it through what we call our specialty distribution, which is the in-office dispensing. The data you're seeing on this slide only covers the specialty pharmacies. It doesn't cover the in-office dispensing.

[Kennen Mackay:]

Got you. Okay (27

[Alan H. Auerbach:]

So, to answer your question on the 1,600, yes, that is a good number to go forward with. As you know from NERLYNX, as Steve said, about 12% of the discontinuations are due – the discontinuation due to adverse events is about 12%. As you know from the clinical trials, those tend to occur in like the first – that tends to be the highest incidence is the first month that they're on the drug. So, I would say the 1,600 is a good number. But obviously, we have new ones coming in as well. So, we would expect that number to continue to grow.

[Kennen Mackay:]

Got you. Thanks for all the clarity on this.

[Alan H. Auerbach:]

Sure.

[Operator:]

Our next question comes from Yigal Nochomovitz with Citigroup. Please proceed with your question.

[Yigal Dov Nochomovitz:]

Hi, Alan and team. Thanks for taking the question. Could you comment on where things stand with respect to stocking in the current quarter? Or where are those levels relative to the $14 million (28

[Steven Lo:]

Yeah. Hi, this is Steve. We don't have any stocking whatsoever at this part of the launch. The only stocking occurred right at beginning. Let me give you some color on this. We primarily deal with the specialty pharmacies, and they have just-in-time stocking. So, when they dispense a patient, they can immediately order from our 3PL and it gets shipped to this pharmacy within a day or two. The same goes with the physician offices. They don't carry that much stock on hand. They really are once again just-in-time.

[Yigal Dov Nochomovitz:]

Oh, okay. That's actually very helpful clarification. Now, with regard to the pacing of the spend and revenues over the course of the rest of the year, can you just give us a little bit more clarity on, I think, how R&D will trend down to get to cash flow break-even by the end of the year and also whether the additional expected milestones to Pfizer will be – are assumed in that estimate of reaching cash flow break-even? Thanks.

[Alan H. Auerbach:]

Yeah. So, I would expect to have R&D expenses continuing to trend down quarter-over-quarter, I would say flat to down quarter-over-quarter. Obviously, we would expect revenues to increase. And in terms of milestone payments this year, I don't believe there's any milestone payments that are due this year.

[Yigal Dov Nochomovitz:]

Okay. And then, the final one just on the clinical front, are you able to say – well, actually, I have two. First on NALA quickly, are you able to say how many events you've actually generated so far relative to the 425 (30

[Alan H. Auerbach:]

Yeah. In terms of the number of events, I don't have that number in front of me. So, I obviously don't want to be inaccurate in my statement. So, I would have to get back to you on what the numbers are. In terms of I-SPY 3, that's being handled by the I-SPY Group (31

[Yigal Dov Nochomovitz:]

Okay. Thank you.

[Operator:]

Ladies and gentlemen, we have run out of time for this Q&A. I'd like to turn the conference back to Mariann for closing remarks.

[Mariann Ohanesian:]

Thanks, Rob. We appreciate your interest in Puma Biotechnology. As a reminder, this call may be accessed via replay of the webcast at pumabiotechnology.com beginning later today. Thank you again for your time and attention today.

[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.