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PBYI > SEC Filings for PBYI > Form 10-Q on 6-Aug-2013All Recent SEC Filings

Show all filings for PUMA BIOTECHNOLOGY, INC.

Form 10-Q for PUMA BIOTECHNOLOGY, INC.


6-Aug-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 Former Puma and us 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 June 30, 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 decline through the duration 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 recorded a reduction in our R&D expenses, as the Licensor is responsible for


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such costs. The Licensor will continue to be responsible for these costs until the existing trials are completed. Additionally, our expenses to date have been related to hiring of 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.

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 six months ended June 30, 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.

Critical Accounting Policies

We believe there have been no material changes to our critical accounting policies and estimates during the six months ended June 30, 2013, as of the date of filing of this quarterly report, 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.

Emerging Growth Company

We are currently an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. On June 28, 2013, our public float exceeded $700 million. As a result, beginning January 1, 2014, we will begin reporting as a large accelerated filer and will no longer be eligible to rely on the benefits afforded to emerging growth companies under the JOBS 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 from the information that you might receive from other public reporting companies in which you hold equity interests.

Results of Operations

Three Months Ended June 30, 2013 Compared to Three Months Ended June 30, 2012

General and administrative expenses:

For the three months ended June 30, 2013, G&A expenses were approximately $2.3 million, compared to approximately $1.8 million for the three months ended June 30, 2012. G&A expenses for the three months ended June 30, 2013 and 2012 were as follows:

       General and administrative expenses      Three Months Ended June 30,
       (in thousands)                            2013                2012
       Professional fees                     $         511       $         648
       Payroll and related costs                       605                 504
       Facility and equipment costs                    324                 184
       Employee stock-based compensation               443                  36
       Other                                           384                 399

                                             $       2,267       $       1,771

The increase in G&A expenses for the three months ended June 30, 2013, compared to the three months ended June 30, 2012, consisted primarily of an increase in employee stock-based compensation of approximately $0.4 million due to the increased number of option grants corresponding to an increase in headcount. In addition, the three months ended June 30, 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, Chief Executive Officer and President (see Note 5 to the Condensed Consolidated Financial Statements-Stockholders' Equity). G&A expenses for the three months ended June 30, 2013 compared to the three months ended June 30, 2012, also included a decrease in professional fees for services including legal, audit and consulting of approximately $0.1 million due to less regulatory filings related to the 2012 registration of our stock with the SEC, an increase in payroll and related costs of approximately $0.1 million due to an increase of two fulltime employees, and an increase in facility and equipment costs of approximately $0.1 million. The increase in facility and equipment costs resulted from the increase in our rented square footage for office space from approximately 13,250 square feet in the first three months of 2012 to approximately 24,250 square feet in the first three months of 2013. Major expenses incurred in professional fees were legal fees for SEC filings, intellectual property review, contract review, general legal


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support, audit expenses and the costs of consultants supporting our financial system, human resources and Sarbanes-Oxley compliance. We expect facility and equipment costs should remain at comparable levels to the three months ended June 30, 2013, as we are not currently adding office space.


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Research and development expenses:

For the three months ended June 30, 2013, R&D expenses were approximately $10.4 million compared to approximately $13.0 million for the three months ended June 30, 2012. R&D expenses for the three months ended June 30, 2013 and 2012 were as follows:

Research and development expenses                           Three Months Ended June 30,
(in thousands)                                               2013                 2012
Outside CRO/Licensor services                           $        2,300       $       10,287
Outside other clinical development                               4,138                  543
Internal regulatory affairs and quality assurance                1,454                1,076
Internal clinical development                                    1,426                  868
Internal chemical manufacturing                                    120                   70
Employee stock-based compensation                                1,002                  162

                                                        $       10,440       $       13,006

For the three months ended June 30, 2013, R&D expenses consisted primarily of outside other clinical development costs that increased to approximately $4.1 million for the three months ended June 30, 2013, compared to approximately $0.5 million for the three months ended June 30, 2012. The increase of approximately $3.6 million is primarily due to an increase of approximately $1.5 million related to chemical manufacturing such as testing and development of the active pharmaceutical ingredient of our lead drug candidate, and an increase of approximately $1.0 million for data management services. Outside CRO/Licensor services decreased to approximately $2.3 million compared to approximately $10.3 million for the three months ended June 30, 2012. The decrease in outside CRO/Licensor services is due to reaching the clinical trial cost cap in the fourth quarter of 2012 (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. Of the approximately $2.3 million CRO/Licensor expense in the three months ended June 30, 2013, approximately $0.3 million is related to the Licensor legacy clinical trials with the remaining approximately $2.0 million related to the Company initiated clinical trials. The Company initiated trials began during April 2013 and will continue to ramp up in activity during the second half of 2013. The increase in internal regulatory affairs and quality assurance, internal clinical development and internal chemical manufacturing expenses is related to the increase in headcount required to support Company initiated clinical trials. We expect to continue to hire up to 10 additional employees focused on R&D activities during 2013 in support of additional Company initiated clinical trials. The increase in employee stock-based compensation to approximately $1.0 million for the three months ended June 30, 2013, from approximately $0.2 million for the three months ended June 30, 2012, was due to the increase in employee headcount, as well as the increase in our stock price.

Six Months Ended June 30, 2013 Compared to Six Months Ended June 30, 2012

General and administrative expenses:

For the six months ended June 30, 2013, G&A expenses were approximately $4.5 million compared to approximately $3.1 million for the six months ended June 30, 2012. G&A expenses for the six months ended June 30, 2013 and 2012 were as follows:

        General and administrative expenses      Six Months Ended June 30,
        (in thousands)                            2013               2012
        Professional fees                     $      1,178       $      1,156
        Payroll and related costs                    1,181                994
        Facility and equipment costs                   639                279
        Employee stock-based compensation              881                (36 )
        Other                                          662                662

                                              $      4,541       $      3,055

The increase in G&A expenses for the six months ended June 30, 2013, compared to the six months ended June 30, 2012, consisted primarily of an increase in employee stock-based compensation of approximately $0.9 million due to the increased number of option grants corresponding to an increase in headcount. In addition, the six months ended June 30,


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2012, included a reduction to employee stock-based compensation of approximately $0.2 million related to a decrease in calculated valuation of a warrant held by our founder, Chief Executive Office and President (see Note 5 to the Condensed Consolidated Financial Statements-Stockholders' Equity). G&A expenses for the six months ended June 30, 2013, compared to the six months ended June 30, 2012, also included an increase in payroll and related costs of approximately $0.2 million due to two additional employees hired and an increase in facility and equipment costs of approximately $0.4 million. The increase in facility and equipment costs resulted from an increase in our rented square footage for office space from approximately 13,250 square feet in the first six months of 2012 to approximately 24,250 square feet in the first six months of 2013. Major expenses incurred in professional fees were 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.

Research and development expenses:

For the six months ended June 30, 2013, R&D expenses were approximately $20.0 million compared to approximately $23.6 million for the six months ended June 30, 2012. R&D expenses for the six months ended June 30, 2013 and 2012 were as follows:

Research and development expenses                       Six Months Ended June 30,
(in thousands)                                          2013                2012
Outside CRO/Licensor services                       $       5,829       $      18,443
Outside other clinical development                          6,753               1,149
Internal regulatory affairs and quality assurance           2,676               1,864
Internal clinical development                               2,754               1,691
Internal chemical manufacturing                               221                 144
Employee stock-based compensation                           1,739                 283

                                                    $      19,972       $      23,574

For the six months ended June 30, 2013, R&D expenses consisted primarily of outside other clinical development costs that increased to approximately $6.8 million for the six months ended June 30, 2013, compared to approximately $1.1 million for the six months ended June 30, 2012. The increase of approximately $5.7 million is primarily due to an increase of approximately $3.0 million related to chemical manufacturing such as testing and development of the active pharmaceutical ingredient of our lead drug candidate, and an increase of approximately $1.5 million for data management services. Outside CRO/Licensor services decreased to approximately $5.8 million compared to approximately $18.4 million for the six months ended June 30, 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. Of the approximately $5.8 million of CRO/Licensor expense in the six months ended June 30, 2013, approximately $0.5 million is related to the Licensor legacy clinical trials with the remaining approximately $5.3 million related to the Company initiated clinical trials. The increase in internal regulatory affairs and quality assurance, internal clinical development and internal chemical manufacturing expenses is related to the increase in headcount from a limited number of employees during the six months ended June 30, 2012 to a full staff during the six months ended June 30, 2013. We expect to continue to hire up to 10 additional employees focused on R&D activities during 2013. The increase in employee stock-based compensation to approximately $1.7 million for the six months ended June 30, 2013, from approximately $0.3 million for the six months ended June 30, 2012, was due to the increase in employee headcount, as well as the increase in our stock price.

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


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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;

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.

Interest income:

For the three months ended June 30, 2013, we recognized approximately $96,000 in interest income compared to approximately $23,000 for the three months ended June 30, 2012. We recognized approximately $119,000 in interest income during the six months ended June 30, 2013, compared to approximately $48,000 for the six months ended June 30, 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.

Liquidity and Capital Resources

The following table summarizes our liquidity and capital resources as of
June 30, 2013, and is intended to supplement the more detailed discussion that
follows:



Liquidity and capital resources (in thousands)     June 30, 2013          December 31, 2012
Cash and cash equivalents                        $           60,902      $           137,408
Marketable securities                                        46,618                       -
Working capital                                             103,614                  127,271
Stockholders' equity                                        107,025                  128,909

                                                  Six Months Ended        Six Months Ended
                                                   June 30, 2013            June 30, 2012
Cash provided by (used in):
Operating activities                             $          (29,455 )    $           (11,559 )
Investing activities                                        (47,051 )                   (821 )
Financing activities                                             -                        -

Increase (decrease) in cash                      $          (76,506 )    $           (12,380 )

Operating Activities:

For the six months ended June 30, 2013 and the six months ended June 30, 2012, we reported net loss of approximately $24.4 million and $26.6 million, respectively, and cash flows used in operating activities of approximately $29.5 million and $11.6 million, respectively. Our net loss from Former Puma's date of inception, September 15, 2010, through June 30, 2013 amounted to approximately $109.0 million, while negative cash flow from operating activities amounted to approximately $75.3 million for the same period.

For the six months ended June 30, 2013, the net cash used in operating activities, noted above, consisted of approximately $24.4 million of net loss excluding non-cash items, an increase in Licensor receivable of approximately $4.2 million and an increase of approximately $1.8 million in prepaid expenses and other assets. 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 received a payment of approximately $7.7 million related to the 2012 amounts during June 2013. Additionally, in July 2013, we received a payment of approximately $4.0 million related to amounts incurred in the first quarter of 2013. We anticipate receiving payments for the remaining outstanding amounts by the end of 2013. Per the license agreement, the Licensor has 60 days to review the invoices and supporting documentation. However, the Licensor review process and payment has been taking approximately 90 to 105 days. The increase in prepaid expenses and other assets of approximately $1.8 million reflects advance payments to our CROs and other service providers as we ramp up our Phase II and Phase III trials.

For the six months ended June 30, 2012, the net cash used in operating activities, noted above, consisted of approximately $26.6 million of net loss excluding non-cash items, reduced by an increase in accounts payable and accrued expenses of approximately $15.0 million related to charges from transition activities billed to us as we assume clinical trial responsibilities from the Licensor of our lead product candidate. Approximately $3.0 million of accrued expenses represents duplication of effort as the Licensor transferred clinical trial knowledge and responsibility to us.


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Investing Activities:

During the six months ended June 30, 2013, we invested approximately $46.7 million of excess cash in corporate bonds and $0.4 million in the purchase of property and equipment, compared to approximately $0.4 million in the purchase of property and equipment, $0.2 million for leasehold improvements and $0.2 million for a standby letter of credit for our office space lease for the six months ended June 30, 2012.

Financing Activities:

We did not engage in any financing activities during the six months ended June 30, 2013 or the six months ended June 30, 2012.

Current and Future Financing Needs:

We have incurred negative cash flow 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 six product candidates, over the next 12 months we estimate that our R&D spending will be approximately $45 million to $55 million, excluding stock-based compensation. We anticipate spending approximately $7 million to $8 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 $107.5 million in cash, cash equivalents and marketable securities and the $14.8 million Licensor receivable as of June 30, 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 . . .

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