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PBYI > SEC Filings for PBYI > Form 10-Q on 9-May-2013All Recent SEC Filings

Show all filings for PUMA BIOTECHNOLOGY, INC. | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for PUMA BIOTECHNOLOGY, INC.


9-May-2013

Quarterly Report


Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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. The following discussion should also be read in conjunction with our audited 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 ended December 31, 2012.

Unless otherwise provided in this Quarterly Report, references to the "Company," "we," "us," and "our" refer to Puma Biotechnology, Inc., a Delaware corporation formed on April 27, 2007 and formerly known as Innovative Acquisitions Corp., together with its wholly-owned subsidiary, Puma Biotechnology Ltd, and all references to "Former Puma" refer to Puma Biotechnology, Inc., a privately held Delaware corporation formed on September 15, 2010 that merged with and into us on October 4, 2011. This transaction was accounted for as a reverse acquisition whereby Former Puma was deemed to be the acquirer for accounting and financial reporting purposes and we were deemed to be the acquired party. Consequently, our financial statements prior to the reverse merger transaction reflect the assets and liabilities and the historical operations of Former Puma from its inception on September 15, 2010 through the closing of the reverse merger transaction on October 4, 2011. Our financial statements after completion of the reverse merger transaction include the assets and liabilities of us and Former Puma and the operations of Former Puma and us.

Overview

We are a development-stage biopharmaceutical company based in Los Angeles, California with a focus on the acquisition, development and commercialization of innovative products to enhance cancer care. We aim to acquire proprietary rights to these products, by license or otherwise, fund their research and development and bring the products to market. Our efforts and resources to date have been focused primarily on acquiring and developing our pharmaceutical technologies, raising capital and recruiting personnel. As a development-stage company, we have had no product sales to date and we will have no product sales until we receive approval from the United States Food and Drug Administration, or FDA, or equivalent foreign regulatory bodies to begin selling our pharmaceutical candidates. Developing pharmaceutical products, however, is a lengthy and very expensive process. Assuming we do not encounter any unforeseen safety issues during the course of developing our product candidates, we do not expect to receive approval of a product candidate until approximately 2015.

We currently license the rights to three drug candidates:

PB272 (neratinib (oral)), which we are developing for the treatment of advanced breast cancer patients and non-small cell lung cancer patients;

PB272 (neratinib (intravenous)), which we are developing for the treatment of advanced cancer patients; and

PB357, which we believe can serve as a backup compound to PB272 and which we plan to evaluate for further development in 2013.

A large portion of our expenses to date have been related to the clinical development of our lead product candidate, PB272 (neratinib (oral)), and the transition of the neratinib program from Pfizer, Inc., or the Licensor. During this transition period, as we developed our infrastructure and assumed responsibility for the neratinib program, a duplication of effort took place that resulted in higher than normal operating expenses. We estimate the duplication of effort for the three months ended March 31, 2013, had an impact on research and development, or R&D, operating expense of approximately $0.3 million, which consisted mainly of data management and pharmacovigilance. We anticipate these costs to continue on a decreasing basis through the completion of the clinical trials for PB272 that were ongoing at the time we entered into the license agreement with the Licensor. We refer to these clinical trials as the legacy clinical trials.

The license agreement for PB272 established a limit for our expenses related to the legacy clinical trials. This capped our "out-of-pocket" costs incurred beginning January 1, 2012, in conducting these existing trials. We reached the cost cap during the fourth quarter of 2012 and have experienced a reduction in our R&D expenses, as the Licensor will be responsible for such costs. The Licensor will be responsible for these expenses until the existing trials are completed. Additionally, our expenses to date have been related to hiring staff and development of our corporate infrastructure. As we proceed with clinical development of PB272 (neratinib (oral)), and as we further develop PB272 (neratinib (intravenous)), and PB357, our second and third product candidates, respectively, we expect our R&D expenses and expenses related to our third-party contractors will increase.

To the extent we are successful in acquiring additional product candidates for our development pipeline, our need to finance R&D will increase. Accordingly, our success depends not only on the safety and efficacy of our product candidates, but also on our ability to finance product development. Our major sources of working capital have been proceeds from private sales and a public offering of our common stock.


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R&D expenses include costs associated with services provided by consultants who conduct clinical services on our behalf, contract organizations for manufacturing of clinical materials and clinical trials. During the three months ended March 31, 2013, our R&D expenses consisted primarily of CRO costs, salaries and related personnel costs, and fees paid to other consultants. We expense our R&D costs as they are incurred.

General and administrative, or G&A, expenses consist primarily of salaries and related personnel costs including stock-based compensation expense, professional fees, business insurance, rent, general legal activities, and other corporate expenses.

Emerging Growth Company

We are and will remain an "emerging growth company", as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, until the earliest to occur of (1) the last day of the fiscal year during which our total annual gross revenues equal or exceed $1 billion (subject to adjustment for inflation);
(2) the last day of our fiscal year following the fifth anniversary of the date of the first sale of our common equity securities pursuant to an effective registration statement under the Securities Act, which such fifth anniversary will occur in 2017; (3) the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt; or
(4) the date on which we are deemed a large accelerated filer under the Exchange Act.

Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, for complying with new or revised accounting standards. We have irrevocably elected not to avail ourselves of this extended transition period for complying with new or revised accounting standards and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other companies; however, we have elected to take advantage of certain of the reduced disclosure obligations and may elect to take advantage of other reduced burdens in future filings. As a result, the information that we provide to our stockholders may be different than you might receive from other public reporting companies in which you hold equity interests.

Critical Accounting Policies

As of the date of the filing of this quarterly report, we believe there have been no material changes to our critical accounting policies and estimates during the three months ended March 31, 2013, from our accounting policies at December 31, 2012, as reported in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012.

Results of Operations

Three Months Ended March 31, 2013 Compared to Three Months Ended March 31, 2012

General and administrative expenses:

For the three months ended March 31, 2013, G&A expenses were approximately $2.3 million compared to approximately $1.3 million for the three months ended March 31, 2012. G&A expenses for the three months ended March 31, 2013 and 2012 were as follows:

              General and administrative expenses      Three months
              in thousands ($000)                    2013        2012
              Professional fees                     $   667     $   508
              Payroll and related costs                 576         490
              Facility and equipment costs              315         195
              Employee stock-based compensation         438         (72 )
              Other                                     278         163

                                                    $ 2,274     $ 1,284

The increase in G&A expenses for the three months ended March 31, 2013, compared to the three months ended March 31, 2012, consisted primarily of an increase in employee stock-based compensation of approximately $0.5 million due to the increased number of grants corresponding to an increase in headcount. In addition, the three months ended March 31, 2012, included a reduction to employee stock-based compensation of approximately $0.1 million related to a decrease in calculated valuation of a warrant held by our founder, President and Chief Executive Officer (see Note 5 to the Condensed Consolidated Financial Statements-Stockholders' Equity). G&A expenses for the three months ended March 31, 2013 compared to the three months ended March 31, 2012, also included an increase in professional fees for services such as legal, audit and consulting of approximately $0.2 million, an increase in payroll and related costs of approximately $0.1 million, and an increase in facility and equipment costs of approximately $0.1 million. Major expenses incurred in professional fees were


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legal fees for SEC filings, intellectual property review, contract review, general legal support, audit expenses and the costs of consultants supporting our financial system, human resources and Sarbanes-Oxley compliance. We expect stock-based compensation and payroll and payroll-related costs to increase only nominally as we intend to add an additional one to two employees in the G&A area during 2013. We expect facility and equipment costs should remain at least at comparable levels to the three months ended March 31, 2013, as we are not currently adding office space.

Research and development expenses:

For the three months ended March 31, 2013, R&D expenses were approximately $9.5 million compared to approximately $10.6 million for the three months ended March 31, 2012. R&D expenses for the three months ended March 31, 2013 and 2012 were as follows:

       Research and development expenses                       Three months
       in thousands ($000)                                  2013         2012
       Outside CRO/Licensor services                       $ 3,529     $  8,156
       Outside other clinical development                    2,615          790
       Internal regulatory affairs and quality assurance     1,266          834
       Internal clinical development                         1,284          593
       Internal chemical manufacturing                         101           74
       Employee stock-based compensation                       737          121

                                                           $ 9,532     $ 10,568

For the three months ended March 31, 2013, R&D expenses consisted primarily of outside CRO/Licensor services of approximately $3.5 million compared to approximately $8.2 million for the three months ended March 31, 2012. This decrease in outside CRO/Licensor services is due to reaching the clinical trial cost cap (see Note 2 to the Condensed Consolidated Financial Statements-Significant Accounting Policies-Research and Development Reimbursement). Additionally, Licensor services provided in maintaining and transitioning the legacy clinical trials have decreased dramatically and are expected to continue to decrease as the legacy trials are completed. Outside other clinical development costs increased to approximately $2.6 million for the three months ended March 31, 2013, compared to approximately $0.8 million for the three months ended March 31, 2012. This increase of approximately $1.8 million is due to an increase of approximately $0.7 million related to testing and development of the active pharmaceutical ingredient of our lead drug candidate, as well as approximately $0.8 million for the purchase of co-medications for use as we initiate our Phase II and Phase III clinical trials and an increase of approximately $0.3 million for data management services. The increase in internal regulatory affairs and quality assurance, internal clinical development and internal chemical manufacturing is related to the increase in headcount from a limited number of employees during the three months ended March 31, 2012 to a full staff during the three months ended March 31, 2013. We expect to continue to hire up to 10 additional employees during 2013 focused on R&D activities. The increase in employee stock-based compensation to approximately $0.7 million for the three months ended March 31, 2013, from approximately $0.1 million for the period ended March 31, 2012, was due to the increase in employee headcount, as well as the increase in our stock price.

Interest income:

For the three months ended March 31, 2013, we recognized approximately $23,000 in interest income compared to approximately $25,600 for the three months ended March 31, 2012. Based on market conditions, we placed our excess funds in money market accounts, "high yield" savings accounts and other marketable securities, per our investment policy.

While expenditures on current and future clinical development programs, particularly our PB272 program, are expected to be substantial and to increase, they are subject to many uncertainties, including the results of clinical trials and whether we develop any of our drug candidates with a partner or independently. As a result of such uncertainties, we cannot predict with any significant degree of certainty the duration and completion costs of our research and development projects or whether, when and to what extent we will generate revenues from the commercialization and sale of any of our product candidates. The duration and cost of clinical trials may vary significantly over the life of a project as a result of unanticipated events arising during clinical development and a variety of other factors, including:

the number of trials and studies in a clinical program;

the number of patients who participate in the trials;

the number of sites included in the trials;

the rates of patient recruitment and enrollment;


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the duration of patient treatment and follow-up;

the costs of manufacturing our drug candidates; and

the costs, requirements, timing of, and ability to secure regulatory approvals.

Liquidity and Capital Resources

The following table summarizes our liquidity and capital resources as of
March 31, 2013, and is intended to supplement the more detailed discussion that
follows:



Liquidity and capital resources (in thousands ($000)      March 31, 2013          December 31, 2012
Cash and cash equivalents                              $             91,648      $           137,408
Marketable securities                                                27,070                       -
Working capital                                                     116,571                  127,271
Stockholders' equity                                                118,279                  128,909

                                                        Three Months Ended       Three Months Ended
                                                          March 31, 2013           March 31, 2012
Cash provided by (used in):
Operating activities                                   $            (18,481 )    $            (2,785 )
Investing activities                                                (27,279 )                   (424 )
Financing activities                                                     -                        -

Increase (decrease) in cash                            $            (45,760 )    $            (3,209 )

Operating Activities:

For the three months ended March 31, 2013 and the three months ended March 31, 2012, we reported net loss of approximately $11.8 million and approximately $11.8 million, respectively, and cash flows used in operating activities of approximately $18.5 million and approximately $2.8 million respectively. Our net loss from Former Puma's date of inception, September 15, 2010, through March 31, 2013 amounted to approximately $96.4 million, while negative cash flows from operating activities amounted to approximately $64.3 million for the same period.

For the three months ended March 31, 2013, the net cash used in operating activities, noted above, is comprised of approximately $10.5 million of net loss, excluding non-cash items, an increase in Licensor receivable of approximately $6.7 million and an increase of approximately $1.2 million in prepaid expenses. The increase in Licensor receivable (see Note 2-Significant Accounting Policies-Research and Development Reimbursement) represents external charges for services provided by third parties pertaining to the legacy clinical trials. We anticipate receiving payments "(approximately $9.7 million net of Licensor payable)" for the outstanding invoices by the end of the second quarter. The increase in prepaid expenses of approximately $1.2 million reflects advance payments to our CROs and other service providers as we ramp up our Phase II and Phase III trials.

For the three months ended March 31, 2012, the net cash used in operating activities, noted above, is comprised of approximately $11.5 million of net loss, excluding non-cash items, reduced by an increase in accounts payable and accrued expenses of approximately $8.9 million related to charges from transition activities billed to us as we assume clinical trial responsibilities from the Licensor of our lead product candidate, of which approximately $3.0 million represents duplication of effort as the Licensor transferred clinical trial knowledge and responsibility to us.

Investing Activities:

During the three months ended March 31, 2013, we invested approximately $27.1 million of excess cash in corporate bonds compared to the three months ended March 31, 2012, when we invested approximately $0.4 million in


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leasehold improvements and property and equipment.

Financing Activities:

We did not engage in any financing activities during the three months ended March 31, 2013 or the three months ended March 31, 2012.

Current and Future Financing Needs:

We have incurred negative cash flows from operations since we started our business. 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 and our R&D efforts. Given the current and desired pace of clinical development of our three product candidates, over the next 12 months we estimate that our R&D spending will be approximately $40 million to $45 million, excluding stock-based compensation. We anticipate spending approximately $6 million to $7 million for general and administrative expenses over the next 12 months, excluding stock-based compensation. The actual amount of funds we will need to operate is subject to many factors, some of which are beyond our control.

While we believe that the approximately $118.7 million in cash, cash equivalents and marketable securities as of March 31, 2013, will be sufficient to enable us to meet our anticipated expenditures through 2014 and into 2015, we may seek to obtain additional capital through the sale of debt or equity securities, if necessary, especially in conjunction with opportunistic acquisitions or licensing arrangements. We expect to continue incurring significant losses for the foreseeable future and our continuing operations will depend on whether we are able to raise additional funds through additional equity or debt financing or by entering into a strategic alliance with a third party concerning one or more of our product candidates. Through March 31, 2013, a significant portion of our financing has been through a public offering and private placements of our equity securities. We will continue to fund operations from cash on hand and through the similar sources of capital previously described. We can give no assurances that any additional capital raised will be sufficient to meet our needs. Further, in light of current economic conditions, including the lack of access to the capital markets being experienced by small companies, particularly in our industry, there can be no assurance that such capital will be available to us on favorable terms or at all. If we are unable to raise additional funds in the future, we may be forced to delay or discontinue the development of one or more of our product candidates and forego attractive business opportunities. Any additional sources of financing will likely involve the sale of our equity securities, which will have a dilutive effect on our stockholders.

In addition, we have based our estimate on assumptions that may prove to be wrong. We may need to obtain additional funds sooner than planned or in greater amounts than we currently anticipate. 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. We do not have any committed sources of financing at this time, and it is uncertain whether additional funding will be available when we need it on terms that will be acceptable to us, or at all. 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.

Adjusted Statement of Operations:

The following tables present our operating results, as calculated in accordance with the accounting principles generally accepted in the United States, or GAAP, as adjusted to remove the impact of employee stock-based compensation and the outside CRO/Licensor services and outside clinical development costs associated with the Licensor legacy clinical trials that we are in the process of completing. These non-GAAP financial measures are not, and should not be viewed as, substitutes for GAAP reporting measures. We believe these non-GAAP measures enhance understanding of our financial performance, are more indicative of our operational performance and facilitate a better comparison among fiscal periods. The majority of the cost associated with the Licensor legacy clinical trials related to external costs that we were responsible for but that were subject to a cap. Having reached the cap, the Licensor is responsible for all external costs associated with the Licensor legacy clinical trials going forward and we expect to have only limited costs associated with our managing these trials through completion. We have not established a reserve against these receivables (approximately $9.7 million net of Licensor payable at March 31, 2013) as we have deemed them to be 100% collectable.


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           Reconciliation of GAAP and Non-GAAP Financial Information

                 (in thousands except share and per share data)



                                      GAAP  Measure                                                           Non-GAAP
                                       (Reported)                                                              Measure
                                      Three Months                   Expense Adjustments                     (Reported)
                                          Ended                                      Licensor               Three Months
                                        March 31,            Stock-based              Legacy               Ended March 31,
                                          2013              Compensation          Clinical Trials               2013
2013 Operating expense:
General and administrative           $         2,274        $        (438 )      $              -         $           1,836
Research and development                       9,532                 (737 )                   (275 )                  8,520

Loss from operations                         (11,806 )              1,175                      275                  (10,356 )

Other income (expense):
Interest income                                   23                   -                        -                        23
Other income                                       3                   -                        -                         3

Totals                                            26                   -                        -                        26

Net loss                             $       (11,780 )      $       1,175        $             275        $         (10,330 )

Net loss applicable to common
stock                                $       (11,780 )      $       1,175        $             275        $         (10,330 )

Net loss per common share-basic
and diluted                          $         (0.41 )      $        0.04        $            0.01        $           (0.36 )

Weighted-average common shares
outstanding-basic and diluted             28,676,666           28,676,666               28,676,666               28,676,666



                                      GAAP Measure                                                            Non-GAAP
                                       (Reported)                                                              Measure
                                      Three Months                   Expense Adjustments                     (Reported)
                                          Ended                                      Licensor               Three Months
                                        March 31,            Stock-based          Legacy Clinical          Ended March 31,
                                          2012              Compensation              Trials                    2012
. . .
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