UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2014

OR

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number: 001-35703

 

PUMA BIOTECHNOLOGY, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

77-0683487

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

10880 Wilshire Boulevard, Suite 2150, Los Angeles, CA 90024

(Address of principal executive offices) (Zip code)

(424) 248-6500

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

x

  

Accelerated filer

 

¨

 

 

 

 

Non-accelerated filer

 

¨  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. 30,117,819 shares of Common Stock, par value $0.0001 per share, were outstanding as of August 7, 2014.

 

 

 

 

 


PUMA BIOTECHNOLOGY, INC.

- INDEX -

 

 

Page

PART I – FINANCIAL INFORMATION:

 

 

Item 1.

 

Financial Statements:

1

 

 

 

Condensed Consolidated Balance Sheets as of June 30, 2014 (Unaudited) and December 31, 2013

1

 

 

 

Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2014 and 2013, and from September 15, 2010 (Date of Inception) to June 30, 2014 (Unaudited)

2

 

 

 

Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2014 and 2013, and from September 15, 2010 (Date of Inception) to June 30, 2014 (Unaudited)

3

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the Period from September 15, 2010 (Date of Inception) through June 30, 2014 (Unaudited)

4

 

 

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2014 and 2013, and from September 15, 2010 (Date of Inception) to June 30, 2014 (Unaudited)

5

 

 

 

Notes to Condensed Consolidated Financial Statements

6

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

15

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

22

 

Item 4.

 

Controls and Procedures

22

 

PART II – OTHER INFORMATION:

 

 

Item 1.

 

Legal Proceedings

23

 

Item 1A.

 

Risk Factors

23

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

23

 

Item 3.

 

Defaults Upon Senior Securities

23

 

Item 4.

 

Mine Safety Disclosures

23

 

Item 5.

 

Other Information

23

 

Item 6.

 

Exhibits

24

 

Signatures

25

 

 

 


CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Any statements about our expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and may be forward looking. These forward-looking statements include, but are not limited to, statements about:

the development of our drug candidates, including when we expect to undertake, initiate and complete clinical trials of our product candidates;

the regulatory approval of our drug candidates;

our use of clinical research organizations and other contractors;

our ability to find collaborative partners for research, development and commercialization of potential products;

our ability to market any of our products;

our history of operating losses;

our expectations regarding our costs and expenses;

our anticipated capital requirements and estimates regarding our needs for additional financing;

our ability to compete against other companies and research institutions;

our ability to secure adequate protection for our intellectual property;

our ability to attract and retain key personnel; and

our ability to obtain adequate financing.

These statements are often, but not always, made through the use of words or phrases such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend” and similar words or phrases. Accordingly, these statements involve estimates, assumptions and uncertainties that could cause actual results to differ materially from those expressed in them. Discussions containing these forward-looking statements may be found throughout this Quarterly Report on Form 10-Q, including, in Part I, the section entitled “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These forward-looking statements involve risks and uncertainties, including the risks discussed in Part I, Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2013, that could cause our actual results to differ materially from those in the forward-looking statements. Such risks should be considered in evaluating our prospects and future financial performance. We undertake no obligation to update the forward-looking statements or to reflect events or circumstances after the date of this document.

 

 

 


Part I – FINANCIAL INFORMATION

Item 1. Financial Statements

PUMA BIOTECHNOLOGY, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

 

 

June 30,

 

 

December 31,

 

 

2014

 

 

2013

 

 

(unaudited)

 

 

(note 1)

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

55,356

 

 

$

43,044

 

Marketable securities

 

122,996

 

 

 

40,904

 

Licensor receivable

 

1,760

 

 

 

9,813

 

Prepaid expenses and other, current

 

3,493

 

 

 

2,635

 

Total current assets

 

183,605

 

 

 

96,396

 

Property and equipment, net

 

1,941

 

 

 

1,684

 

Prepaid expenses and other, long-term

 

9,318

 

 

 

5,080

 

Restricted cash

 

1,214

 

 

 

1,214

 

Total assets

$

196,078

 

 

$

104,374

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

18,797

 

 

$

10,692

 

Accrued expenses

 

9,135

 

 

 

8,579

 

Total current liabilities

 

27,932

 

 

 

19,271

 

Deferred rent

 

1,107

 

 

 

1,116

 

Total liabilities

 

29,039

 

 

 

20,387

 

Stockholders' equity:

 

 

 

 

 

 

 

Common stock - $.0001 par value;  100,000,000 shares authorized;

   30,117,819 issued and outstanding at June 30, 2014, and

   28,991,289 issued and outstanding at December 31, 2013

 

3

 

 

 

3

 

Additional paid-in capital

 

365,002

 

 

 

223,232

 

Accumulated other comprehensive income

 

(77

)

 

 

3

 

Deficit accumulated during the development stage

 

(197,889

)

 

 

(139,251

)

Total stockholders' equity

 

167,039

 

 

 

83,987

 

Total liabilities and stockholders' equity

$

196,078

 

 

$

104,374

 

See Accompanying Notes to the Condensed Consolidated Financial Statements

 

 

 

1

 


 

PUMA BIOTECHNOLOGY, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands except share and per share data)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Period from

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 15, 2010

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

(date of inception) to

 

 

2014

 

 

2013

 

 

2014

 

 

2013

 

 

June 30, 2014

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

$

3,904

 

 

$

2,267

 

 

$

7,429

 

 

$

4,541

 

 

$

51,368

 

Research and development

 

35,001

 

 

 

10,440

 

 

 

51,295

 

 

 

19,972

 

 

 

146,803

 

Totals

 

38,905

 

 

 

12,707

 

 

 

58,724

 

 

 

24,513

 

 

 

198,171

 

Loss from operations

 

(38,905

)

 

 

(12,707

)

 

 

(58,724

)

 

 

(24,513

)

 

 

(198,171

)

Other income (expenses):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

66

 

 

 

96

 

 

 

112

 

 

 

119

 

 

 

386

 

Other (expense)

 

(5

)

 

 

(39

)

 

 

(26

)

 

 

(36

)

 

 

(104

)

Totals

 

61

 

 

 

57

 

 

 

86

 

 

 

83

 

 

 

282

 

Net loss

$

(38,844

)

 

$

(12,650

)

 

$

(58,638

)

 

$

(24,430

)

 

$

(197,889

)

Net loss applicable to common stock

$

(38,844

)

 

$

(12,650

)

 

$

(58,638

)

 

$

(24,430

)

 

$

(197,889

)

Net loss per common share—basic

   and diluted

$

(1.29

)

 

$

(0.44

)

 

$

(1.96

)

 

$

(0.85

)

 

 

 

 

Weighted-average common shares

   outstanding—basic and diluted

 

30,117,819

 

 

 

28,676,666

 

 

 

29,843,966

 

 

 

28,676,666

 

 

 

 

 

See Accompanying Notes to the Condensed Consolidated Financial Statements

 

 

 

2

 


 

PUMA BIOTECHNOLOGY, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Period from

 

 

Three Months Ended

 

 

Six Months Ended

 

 

September 15, 2010

 

 

June 30,

 

 

June 30,

 

 

(date of inception) to

 

 

2014

 

 

2013

 

 

2014

 

 

2013

 

 

June 30, 2014

 

Net loss

$

(38,844

)

 

$

(12,650

)

 

$

(58,638

)

 

$

(24,430

)

 

$

(197,889

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on available-for-sale securities

 

(71

)

 

 

(49

)

 

 

(80

)

 

 

(74

)

 

 

(77

)

Comprehensive loss

$

(38,915

)

 

$

(12,699

)

 

$

(58,718

)

 

$

(24,504

)

 

$

(197,966

)

See Accompanying Notes to the Condensed Consolidated Financial Statements

 

 

 

3

 


 

PUMA BIOTECHNOLOGY, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE PERIOD FROM SEPTEMBER 15, 2010 (DATE OF INCEPTION) THROUGH JUNE 30, 2014

(in thousands except share data)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

During the

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Development

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Stage

 

 

Total

 

Balances, beginning

 

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

Common stock issued for cash at $0.0001 per share

 

4,000,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Paid-in capital

 

 

 

 

 

 

 

7

 

 

 

 

 

 

 

 

 

7

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(7

)

 

 

(7

)

Balance at December 31, 2010

 

4,000,000

 

 

 

 

 

 

7

 

 

 

 

 

 

(7

)

 

 

 

Paid-in capital

 

 

 

 

 

 

 

61

 

 

 

 

 

 

 

 

 

61

 

Issuance of shares of common stock through private placements at

   $3.75 per share, net of issuance costs

 

16,000,000

 

 

 

2

 

 

 

56,739

 

 

 

 

 

 

 

 

 

56,741

 

Conversion of stockholder's note payable to equity

 

40,000

 

 

 

 

 

 

150

 

 

 

 

 

 

 

 

 

150

 

Stock option compensation

 

 

 

 

 

 

 

67

 

 

 

 

 

 

 

 

 

67

 

Anti-dilutive warrant

 

 

 

 

 

 

 

7,586

 

 

 

 

 

 

 

 

 

7,586

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,233

)

 

 

(10,233

)

Balance at December 31, 2011

 

20,040,000

 

 

 

2

 

 

 

64,610

 

 

 

 

 

 

(10,240

)

 

 

54,372

 

Issuance of shares of common stock through equity placement at

   $16.00 per share, net of issuance costs

 

8,625,000

 

 

 

1

 

 

 

129,213

 

 

 

 

 

 

 

 

 

129,214

 

Stock option compensation

 

 

 

 

 

 

 

1,408

 

 

 

 

 

 

 

 

 

1,408

 

Anti-dilutive warrant

 

 

 

 

 

 

 

18,222

 

 

 

 

 

 

 

 

 

18,222

 

Exercises of stock options

 

11,666

 

 

 

 

 

 

45

 

 

 

 

 

 

 

 

 

45

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(74,352

)

 

 

(74,352

)

Balance at December 31, 2012

 

28,676,666

 

 

 

3

 

 

 

213,498

 

 

 

 

 

 

(84,592

)

 

 

128,909

 

Stock option compensation

 

 

 

 

 

 

 

7,519

 

 

 

 

 

 

 

 

 

7,519

 

Exercises of stock options

 

314,623

 

 

 

 

 

 

2,215

 

 

 

 

 

 

 

 

 

2,215

 

Unrealized gain on available for sale securities

 

 

 

 

 

 

 

 

 

 

3

 

 

 

 

 

 

3

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(54,659

)

 

 

(54,659

)

Balance at December 31, 2013

 

28,991,289

 

 

 

3

 

 

 

223,232

 

 

 

3

 

 

 

(139,251

)

 

 

83,987

 

Stock option compensation

 

 

 

 

 

 

 

12,330

 

 

 

 

 

 

 

 

 

12,330

 

Issuance of shares of common stock through equity placement at

   $122.50 per share, net of issuance costs

 

1,126,530

 

 

 

 

 

 

129,440

 

 

 

 

 

 

 

 

 

129,440

 

Unrealized loss on available for sale securities

 

 

 

 

 

 

 

 

 

 

(80

)

 

 

 

 

 

(80

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(58,638

)

 

 

(58,638

)

Balance at June 30, 2014

 

30,117,819

 

 

$

3

 

 

$

365,002

 

 

$

(77

)

 

$

(197,889

)

 

$

167,039

 

See Accompanying Notes to the Condensed Consolidated Financial Statements

 

 

 

4

 


 

PUMA BIOTECHNOLOGY, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

Period from

 

 

 

 

 

 

 

 

 

 

September 15, 2010

 

 

 

 

 

 

 

 

 

 

(date of

 

 

Six Months Ended

 

 

inception) to

 

 

June 30,

 

 

June 30,

 

 

2014

 

 

2013

 

 

2014

 

Operating activities:

 

 

 

 

 

 

 

 

 

 

 

Net loss

$

(58,638

)

 

$

(24,430

)

 

$

(197,889

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

279

 

 

 

189

 

 

 

978

 

Build-out allowance received from landlord

 

 

 

 

 

 

 

903

 

Stock option expense

 

12,330

 

 

 

2,620

 

 

 

21,324

 

Anti-dilutive warrant

 

 

 

 

 

 

 

25,808

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

Licensor receivable

 

8,053

 

 

 

(4,161

)

 

 

(1,760

)

Prepaid expenses and other

 

(5,096

)

 

 

(1,842

)

 

 

(12,811

)

Accounts payable

 

8,105

 

 

 

7,142

 

 

 

18,797

 

Accrued expenses

 

556

 

 

 

(9,020

)

 

 

9,135

 

Accrual of deferred rent

 

(9

)

 

 

47

 

 

 

204

 

Net cash used in operating activities

 

(34,420

)

 

 

(29,455

)

 

 

(135,311

)

Investing activities:

 

 

 

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

(426

)

 

 

(354

)

 

 

(1,895

)

Expenditures for leasehold improvements

 

(110

)

 

 

(4

)

 

 

(1,024

)

Restricted cash

 

 

 

 

(1

)

 

 

(1,214

)

Purchase of available-for-sale securities

 

(125,520

)

 

 

(46,692

)

 

 

(174,867

)

Sale/maturity of available-for-sale securities

 

43,348

 

 

 

 

 

 

51,794

 

Net cash used in investing activities

 

(82,708

)

 

 

(47,051

)

 

 

(127,206

)

Financing activities:

 

 

 

 

 

 

 

 

 

 

 

Proceeds from issuance of stockholder's convertible note payable

 

 

 

 

 

 

 

150

 

Net proceeds from issuance of common stock

 

129,440

 

 

 

 

 

 

315,395

 

Net proceeds from exercise of stock options

 

 

 

 

 

 

 

2,260

 

Capital contributions by stockholder

 

 

 

 

 

 

 

68

 

Net cash provided by financing activities

 

129,440

 

 

 

 

 

 

317,873

 

Net increase (decrease) in cash and cash equivalents

 

12,312

 

 

 

(76,506

)

 

 

55,356

 

Cash and cash equivalents, beginning of period

 

43,044

 

 

 

137,408

 

 

 

 

Cash and cash equivalents, end of period

$

55,356

 

 

$

60,902

 

 

$

55,356

 

Supplemental disclosures of non-cash investing and

   financing activities:

 

 

 

 

 

 

 

 

 

 

 

Conversion of stockholder's note payable to common stock

$

 

 

$

 

 

$

150

 

See Accompanying Notes to the Condensed Consolidated Financial Statements

 

 

 

5

 


 

PUMA BIOTECHNOLOGY, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1—Business and Basis of Presentation:

Business:

Puma Biotechnology, Inc., or Puma, is a development stage biopharmaceutical company based in Los Angeles, California that acquires and develops innovative products for the treatment of various forms of cancer. References in these Notes to Condensed Consolidated Financial Statements to the “Company” refer to Puma Biotechnology, Inc., a private Delaware company formed on September 15, 2010, for periods prior to the Merger (as defined below), which took place on October 4, 2011, and Puma Biotechnology, Inc., a Delaware company formed on April 27, 2007, and formerly known as Innovative Acquisitions Corp., for periods following the Merger. The Company focuses on in-licensing drug candidates that are undergoing or have already completed initial clinical testing for the treatment of cancer and then seeks to further develop those drug candidates for commercial use.

In November 2012, the Company established and incorporated Puma Biotechnology Ltd, a wholly-owned subsidiary, for the sole purpose of serving as Puma’s legal representative in the United Kingdom and the European Union in connection with Puma’s clinical trial activity in those countries.

Basis of Presentation:

The Company is a development stage enterprise since it has not yet generated any revenue from the sale of products and, through June 30, 2014, its primary focus has been the transition of operational responsibility for its lead drug candidate, PB272 (neratinib (oral)), from Pfizer, Inc., or the Licensor, to the Company (see the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013 and Note 7 to these Condensed Consolidated Financial Statements, for additional information on the license agreement) along with the execution of clinical trials in HER2-positive metastatic breast cancer, HER2-positive neoadjuvant breast cancer, HER2-positive adjuvant breast cancer as well as clinical trials in advanced cancer patients with tumors that have HER2-mutations including non-small cell lung cancer, HER2-negative breast cancer, and other solid tumors. The accompanying unaudited condensed consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, pursuant to the rules and regulations of the Securities and Exchange Commission, or the SEC, for interim financial information. Accordingly, the financial statements do not include all information and footnotes required by GAAP for complete annual financial statements. In the opinion of management, the accompanying unaudited condensed consolidated interim financial statements reflect all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation. Interim operating results are not necessarily indicative of results that may be expected for the year ending December 31, 2014, or for any subsequent period. These unaudited condensed consolidated interim financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. The condensed consolidated balance sheet at December 31, 2013, has been derived from the audited financial statements included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

The Company has reported a net loss of approximately $38.8 million and $58.6 million and negative cash flows from operations of approximately $17.4 million and $34.4 million for the three and six months ended June 30, 2014, respectively. The net loss from the date of inception, September 15, 2010, to June 30, 2014, amounted to approximately $197.9 million, while the negative cash flows from operations from the date of inception amounted to approximately $135.3 million. For the three and six months ended June 30, 2014, the Company’s net loss was impacted by the amendment to the license agreement signed during July 2014, which resulted in the Company recognizing the expenses incurred in connection with the ongoing clinical trials after December 31, 2013 (see Note 7—Subsequent Events). Management believes that the Company will continue to incur net losses and negative net cash flows from operating activities through the drug development process.

The Company’s continued operations will depend on its ability to raise funds through various potential sources such as equity and debt financing. Through June 30, 2014, the Company’s financing was primarily through public offerings of Company common stock and private equity placements. Given the current and desired pace of clinical development of its product candidates, management estimates that the Company has sufficient cash on hand to fund clinical development through 2015 and into 2016. The Company will need additional financing thereafter until it can achieve profitability, if ever. The Company may choose to raise additional capital before 2016 in order to fund its future development activities. There can be no assurance that such capital will be available on favorable terms, or at all, or that any additional capital that the Company is able to obtain will be sufficient to meet its needs. If it is unable to raise additional capital, the Company could likely be forced to curtail desired development activities, which will delay the development of its product candidates.

6

 


 

Merger with Public Company:

On September 29, 2011, the Company entered into an agreement and plan of merger, or the Merger Agreement, with Innovative Acquisitions Corp., or IAC, and IAC’s wholly-owned subsidiary, IAC Merger Corporation, or Merger Sub. On October 4, 2011, the Company completed a reverse merger in which Merger Sub merged with and into the Company and the Company became a wholly-owned subsidiary of IAC, or the Merger. At the effective time of the Merger, the Company’s then issued and outstanding 18,666,733 shares of common stock were exchanged for 18,666,733 shares of common stock of IAC and each share of the Company’s common stock that was outstanding immediately prior to the effective time was cancelled, with one share of the Company common stock issued to IAC. Concurrently, IAC redeemed all of its shares from its pre-Merger stockholders in exchange for aggregate consideration of $40,000 paid by the Company. The Company also paid $40,000 for IAC’s professional fees associated with the Merger directly to legal counsel for IAC’s former stockholders. Following the Merger and the redemption, the Company’s prior stockholders owned the same percentage of IAC’s common stock as they held of the Company’s common stock prior to the Merger.

Upon completion of the Merger, the Company merged with and into IAC, and IAC adopted the Company’s business plan and changed its name to “Puma Biotechnology, Inc.” Further, upon completion of the Merger, the existing officers and directors of IAC resigned and the existing officers and directors of the Company were appointed officers and directors of IAC.

The Merger was accounted for as a reverse acquisition, with the Company as the accounting acquirer and IAC as the accounting acquiree. The merger of a private operating company into a non-operating public shell corporation with nominal net assets is considered to be a capital transaction in substance, rather than a business combination for accounting purposes. Accordingly, the Company treated this transaction as a capital transaction without recording goodwill or adjusting any of its other assets or liabilities. Consideration in the amount of $80,000 paid to the former stockholders of IAC and their attorney was recorded as an other expense item and included in the Company’s net loss for the year ended December 31, 2011.

 

Note 2—Significant Accounting Policies:

The significant accounting policies followed in the preparation of these condensed consolidated financial statements are as follows:

Use of Estimates:

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet and reported amounts of expenses for the period presented. Accordingly, actual results could differ from those estimates. Significant estimates include the cost of services provided by consultants who manage clinical trials and conduct research and clinical trials on behalf of the Company that are billed on a delayed basis. As the actual costs become known, the Company adjusts its estimated cost in that period. The value of stock-based compensation includes estimates based on future events, which are difficult to predict. It is at least reasonably possible that a change in the estimates will occur in the near term.

Principles of Consolidation:

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All significant intercompany balances and transactions have been eliminated in consolidation.

Cash and Cash Equivalents:

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. Cash equivalents are carried at cost, which approximates fair value.

Licensor Receivable:

Licensor receivable represents the remaining 2013 and prior external “out of pocket” clinical trial costs in excess of an agreed upon “cap” for clinical trials that were ongoing at the time the licensing agreement with the Licensor was reached. In July 2014, the license agreement was amended to make the Company solely responsible for the expenses incurred or accrued in conducting the ongoing legacy clinical trials after December 31, 2013 and to fix the future royalty rate that must be paid to the Licensor upon commercialization in the low- to mid-teens (see Note 7 – Subsequent Events). The Company has not established a reserve against this receivable as it is deemed to be fully collectible.

7

 


 

Marketable Securities:

The Company classifies all investment securities (short-term and long-term) as available-for-sale, as the sale of such securities may be required prior to maturity to implement management’s strategies. These securities are carried at fair value, with the unrealized gains and losses, if material, reported as a component of accumulated other comprehensive income (loss) in stockholders’ equity until realized. Realized gains and losses from the sale of available-for-sale securities, if any, are determined on a specific identification basis. A decline in the market value of any available-for-sale security below cost that is determined to be other than temporary results in a revaluation of its carrying amount to fair value. The impairment is charged to earnings and a new cost basis for the security is established. Premiums and discounts are amortized or accreted over the life of the related security as an adjustment to yield using the straight-line method. Interest income is recognized when earned.

Assets Measured at Fair Value on a Recurring Basis:

Accounting Standards Codification, or ASC 820, Fair Value Measurement, provides a single definition of fair value and a common framework for measuring fair value as well as new disclosure requirements for fair value measurements used in financial statements. Under ASC 820, fair value is determined based upon the exit price that would be received by a company to sell an asset or paid by a company to transfer a liability in an orderly transaction between market participants, exclusive of any transaction costs. Fair value measurements are determined by either the principal market or the most advantageous market. The principal market is the market with the greatest level of activity and volume for the asset or liability. Absent a principal market to measure fair value, the Company uses the most advantageous market, which is the market from which the Company would receive the highest selling price for the asset or pay the lowest price to settle the liability, after considering transaction costs. However, when using the most advantageous market, transaction costs are only considered to determine which market is the most advantageous and these costs are then excluded when applying a fair value measurement. ASC 820 creates a three-level hierarchy to prioritize the inputs used in the valuation techniques to derive fair values. The basis for fair value measurements for each level within the hierarchy is described below, with Level 1 having the highest priority and Level 3 having the lowest.

 

 

Level 1:

  

Quoted prices in active markets for identical assets or liabilities.

 

 

Level 2:

  

 

Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.

 

 

Level 3:

  

Valuations derived from valuation techniques in which one or more significant inputs are unobservable.

Following are the major categories of assets measured at fair value on a recurring basis as of June 30, 2014, and December 31, 2013, using quoted prices in active markets for identical assets (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3) (in thousands):

 

June 30, 2014

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash equivalents

 

$

53,733

 

 

$

 

 

$

 

 

$

53,733

 

Marketable securities - corporate bonds

 

 

 

 

 

91,926

 

 

 

 

 

 

91,926

 

Marketable securities - US government

 

 

 

 

 

 

11,493

 

 

 

 

 

 

 

11,493

 

Marketable securities - commercial paper

 

 

 

 

 

19,577

 

 

 

 

 

 

19,577

 

 

 

$

53,733

 

 

$

122,996

 

 

$

 

 

$

176,729

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2013

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash equivalents

 

$

41,598

 

 

$

 

 

$

 

 

$

41,598

 

Marketable securities - corporate bonds

 

 

 

 

 

40,904

 

 

 

 

 

 

40,904

 

 

 

$

41,598

 

 

$

40,904

 

 

$

 

 

$

82,502

 

 

The Company’s investments in short-term investment securities are exposed to price fluctuations. The fair value measurements for short-term investment securities are based upon the quoted price in active markets multiplied by the number of securities owned, exclusive of any transaction costs and without any adjustments to reflect discounts that may be applied to selling a large block of securities at one time.

Concentration of Risk:

Financial instruments, which potentially subject the Company to concentrations of credit risk, principally consist of cash and cash equivalents. The Company’s cash and cash equivalents in excess of the Federal Deposit Insurance Corporation and the Securities

8

 


 

Investor Protection Corporation insured limits at June 30, 2014, were approximately $56.4 million. The Company does not believe it is exposed to any significant credit risk.

Property and Equipment:

Property and equipment are recorded at cost and depreciated over estimated useful lives ranging from three to five years using the straight-line method. Leasehold improvements are recorded at cost and amortized over the shorter of their useful lives or the term of the lease by use of the straight-line method. Maintenance and repair costs are charged to operations as incurred.

The Company assesses the impairment of long-lived assets, primarily property and equipment, whenever events or changes in business circumstances indicate that carrying amounts of the assets may not be fully recoverable. When such events occur, management determines whether there has been impairment by comparing the asset’s carrying value with its fair value, as measured by the anticipated undiscounted net cash flows of the asset. Should impairment exist, the asset is written down to its estimated fair value. The Company has not recognized any impairment losses through June 30, 2014.

Research and Development Expenses:

Research and development, or R&D, expenses are charged to operations as incurred. The major components of R&D costs include clinical manufacturing costs, clinical trial expenses, consulting and other third-party costs, salaries and employee benefits, stock-based compensation expense, supplies and materials, and allocations of various overhead costs. Clinical trial expenses include, but are not limited to, investigator fees, site costs, comparator drug costs, and clinical research organization, or CRO, costs. In the normal course of business, the Company contracts with third parties to perform various clinical trial activities in the ongoing development of potential products. The financial terms of these agreements are subject to negotiation and variations from contract to contract and may result in uneven payment flows. Payments under the contracts depend on factors such as the achievement of certain events, the successful enrollment of patients and the completion of portions of the clinical trial or similar conditions. The Company’s cost accruals for clinical trials are based on estimates of the services received and efforts expended pursuant to contracts with numerous clinical trial sites, cooperative groups and CROs. The objective of the Company’s accrual policy is to match the recording of expenses in the condensed consolidated financial statements to the actual services received and efforts expended. As actual costs become known, the Company adjusts its accruals in that period.

In instances where the Company enters into agreements with third parties for clinical trials and other consulting activities, upfront amounts are recorded to prepaid expenses and deposits in the accompanying condensed consolidated balance sheets and expensed as services are performed or as the underlying goods are delivered. If the Company does not expect the services to be rendered or goods to be delivered, any remaining capitalized amounts for non-refundable upfront payments are charged to expense immediately. Amounts due under such arrangements may be either fixed fee or fee for service, and may include upfront payments, monthly payments and payments upon the completion of milestones or receipt of deliverables.

Costs related to the acquisition of technology rights and patents for which development work is still in process are charged to operations as incurred and considered a component of research and development costs.

Research and Development Reimbursement:

The licensing agreement set a “cap” on the amount of external expenses the Company would incur, beginning January 1, 2012, in completing the clinical trials transferred from the Licensor to the Company. The license agreement was amended in July 2014 which made the Company solely responsible for the expenses incurred or accrued in conducting the ongoing legacy clinical trials after December 31, 2013.  In addition, as part of the amended license agreement, the Company will pay the Licensor a fixed royalty rate in the low- to mid- teens upon commercialization of licensed products (see Note 7 – Subsequent Events for additional information). The license agreement originally stipulated that the Licensor would be responsible for all external expenses associated with the transferred clinical trials and that the Company would invoice for such costs on a quarterly basis. The Licensor has 60 days to review the invoice and supporting documentation. All amounts reimbursed from the licensor represent charges for services provided by third parties and not the Company. Accordingly, the Company has elected to treat the reimbursed costs as “pass-through” expenses billable to the Licensor and as an offset to R&D expenses. R&D expenses are recorded net of any excess cap costs billed to the Licensor. The Company recognized approximately $5.1 million and $9.7 million of excess cap costs during the three months and six months ended June 30, 2013, respectively. Pursuant to the amendment to the license agreement (see Note 7 – Subsequent Events) no reduction in the expenses related the licensor legacy clinical trials that were in excess of a cap on such expenses set forth in the license agreement was recorded in the three and six months ended June 30, 2014.  “Excess cap costs” for the three months ended March 31, 2014 totaling $3.5 million, which were previously recorded as an offset to R&D expenses and licensor receivable, were recorded as a period cost in the three and six months ended June 30, 2014 as a result of the amendment.

9

 


 

Stock-Based Compensation:

Stock option awards:

ASC 718, Compensation-Stock Compensation, or ASC 718, requires the fair value of all share-based payments to employees, including grants of stock options, to be recognized in the statement of operations over the requisite service period. Under ASC 718, employee option grants are generally valued at the date of grant, or grant date, and those valuations do not change once they have been established. The fair value of each option award is estimated on the grant date using the Black-Scholes Option Pricing Method. As allowed by ASC 718 for companies with a short period of publicly traded stock history, the Company’s estimate of expected volatility is based on the average expected volatilities of a sampling of five companies with similar attributes to the Company, including industry, stage of life cycle, size and financial leverage. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant valuation. ASC 718 does not allow companies to account for option forfeitures as they occur; instead, estimated option forfeitures must be calculated when the option is granted to reduce the option expense to be recognized over the life of the award and updated upon receipt of further information as to the amount of options expected to be forfeited. Due to its limited history, the Company uses the simplified method to determine the expected life of the option grants.

Performance shares:

The performance shares are valued on the grant date and the fair value of the performance award is equal to the market price of the Company’s common stock on the grant date. The performance share expense is recognized based on the Company’s estimate of a range of probabilities that the Company’s closing common stock price will be lower or higher than the Company’s common stock price on the grant date on the vesting dates. Based on the range of probabilities, the expense is calculated and recognized over the three-year vesting period.

Net Loss per Common Share:

Basic net loss per common share is computed by dividing net loss applicable to common stockholders by the weighted average number of common shares outstanding during the periods presented, as required by ASC 260, Earnings per Share. Diluted earnings per common share are the same as basic earnings per share because the assumed exercise of the Company’s outstanding options are anti-dilutive. For the three and six months ended June 30, 2014, potentially dilutive securities excluded from the calculations were 3,375,807 shares issuable upon exercise of options, 28,411 performance shares issuable upon attainment of stock price objectives over the vesting period of the performance share awards and 2,116,250 shares issuable upon exercise of an outstanding warrant. For the three and six months ended June 30, 2013, potentially dilutive securities excluded from the earnings per common share calculation were 2,234,531 shares issuable upon exercise of options and 2,116,250 shares issuable upon exercise of an outstanding warrant.

Deferred Rent:

The Company has entered into operating lease agreements for its corporate offices in Los Angeles and South San Francisco that contain provisions for future rent increases, leasehold improvement allowances and rent abatements. The Company records monthly rent expense equal to the total of the payments due over the lease term, divided by the number of months of the lease term. The difference between the rent expense recorded and the amount paid is credited or charged to deferred rent, which is reflected as a separate line item in the accompanying condensed consolidated balance sheets. Additionally, the Company recorded as deferred rent the cost of the leasehold improvements paid by the landlord, which is amortized on a straight-line basis over the term of the lease.

 

Recently Issued Accounting Pronouncements:

 

In May 2014, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. 2014-09 Revenue from Contracts with Customers, or ASU No. 2014-09, which will supersede nearly all existing revenue recognition guidance under GAAP. ASU No. 2014-09 provides that an entity recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This update also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. ASU No. 2014-09 allows for either full retrospective or modified retrospective adoption and will become effective for the Company in the first quarter of 2018. The Company is a development stage entity and will evaluate the effects of this update on its consolidated financial statements when it generates revenues.

In June 2014, the FASB issued ASU No. 2014-10, Development Stage Entities, or ASU No. 2014-10, which eliminated certain financial reporting requirements of companies previously identified as development stage entities (Topic 915). The amendments in this ASU simplify accounting guidance by removing all incremental financial reporting requirements for development stage entities. The amendments also reduce data maintenance and, for those entities subject to audit, audit costs by eliminating the

10

 


 

requirement for development stage entities to present inception-to-date information in the statements of income, cash flows, and stockholder equity.  For public entities, these amendments begin to be effective for periods after December 31, 2014.  Early application of each of the amendments is permitted for any annual reporting period or interim period for which the entity’s financial statements have not yet been issued (public business entities) or made available for issuance (other entities). Upon adoption, entities will no longer present or disclose any information required by Topic 915.  The Company will adopt this standard in future presentations.  The financial impact on the Company is expected to be negligible.

 

Note 3—Prepaid Expenses and Other:

Prepaid expenses and other consisted of the following (in thousands):

 

 

June 30,

 

 

December 31,

 

 

2014

 

 

2013

 

Short-term:

 

 

 

 

 

 

 

CRO services

$

983

 

 

$

863

 

Other clinical development

 

2,011

 

 

 

1,089

 

Insurance

 

353

 

 

 

554

 

Other

 

146

 

 

 

129

 

 

 

3,493

 

 

 

2,635

 

Long-term:

 

 

 

 

 

 

 

CRO services

 

6,508

 

 

 

1,509

 

Other clinical development

 

2,584

 

 

 

3,359

 

Insurance

 

170

 

 

 

142

 

Other

 

56

 

 

 

70

 

 

 

9,318

 

 

 

5,080

 

Totals

$

12,811

 

 

$

7,715

 

 

Note 4—Property and Equipment:

Property and equipment consisted of the following (in thousands):

 

 

June 30,

 

 

December 31,

 

 

2014

 

 

2013

 

Leasehold improvements

$

1,024

 

 

$

914

 

Computer equipment

 

1,130

 

 

 

874

 

Telephone equipment

 

86

 

 

 

82

 

Furniture and fixtures

 

679

 

 

 

513

 

 

 

2,919

 

 

 

2,383

 

Less: accumulated depreciation and amortization

 

(978

)

 

 

(699

)

Totals

$

1,941

 

 

$

1,684

 

 

 

Note 5—Accrued Expenses:

Accrued expenses consisted of the following (in thousands):

 

 

June 30,

 

 

December 31,

 

 

2014

 

 

2013

 

Accrued CRO/licensor services

$

3,812

 

 

$

4,801

 

Accrued other clinical development

 

2,190

 

 

 

2,369

 

Accrued legal fees

 

284

 

 

 

84

 

Accrued compensation

 

2,417

 

 

 

1,066

 

Other

 

432

 

 

 

259

 

 

$

9,135

 

 

$

8,579

 

Accrued CRO/licensor services represent the Company’s estimate of such costs as of June 30, 2014, and will be adjusted in the period the actual costs become known. Accrued compensation includes estimated bonus and earned but unused vacation for full-time

11

 


 

employees. When actual performance bonuses are paid out to employees on the employee’s anniversary of hire, the bonus expense will be adjusted to reflect the actual expense for the year. Additionally, vacation is accrued at the rate the employee earns vacation and reduced as vacation is used by the employee.

 

Note 6—Stockholders’ Equity:

Common Stock:

On February 14, 2014, the Company completed an underwritten public offering of 1,126,530 shares of the Company’s common stock (including an additional 146,938 shares of Company common stock issued and sold pursuant to the underwriters’ option to purchase additional shares), par value $0.0001 per share, at a price of $122.50 per share, less the underwriting discount. The net proceeds received by the Company were approximately $129.4 million after deducting the underwriting discount and offering expenses payable by the Company.

Stock-Based Compensation:

The Company’s 2011 Incentive Award Plan, or the 2011 Plan, was adopted by the Board of Directors and stockholders of the Company on September 15, 2011.  An amendment to the 2011 Plan, or the 2011 Plan Amendment, was adopted by the Board of Directors on June 4, 2014 and the stockholders of the Company on June 10, 2014.    The 2011 Plan Amendment increased the number of shares reserved from 3,529,412 to 6,529,412.  Pursuant to the amended 2011 Plan (referred to hereafter as the 2011 Plan), the Company may grant incentive stock options and nonqualified stock options, as well as other forms of equity-based compensation such as performance shares. Incentive stock options may be granted only to employees, while consultants, employees, officers and directors are eligible for the grant of nonqualified options under the 2011 Plan. The maximum term of stock options granted under the 2011 Plan is 10 years. The exercise price of incentive stock options granted under the 2011 Plan must be at least equal to the fair value of such shares on the date of grant. The performance shares are valued at market value less par value and vest over three years with the number of shares to be issued determined by the market price on the vesting date. The maximum number of shares issuable pursuant to a performance share award is established on the grant date.

Employee stock-based compensation for the three and six months ended June 30, 2014 and 2013, were as follows:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2014

 

 

2013

 

 

2014

 

 

2013

 

Stock-based compensation:

 

(in thousands except share and per share data)

 

Options-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

5,738

 

 

$

1,002

 

 

$

8,964

 

 

$

1,739

 

General and administrative, or G&A

 

 

1,363

 

 

 

443

 

 

 

2,704

 

 

 

881

 

Performance shares - R&D

 

 

66

 

 

 

 

 

662

 

 

 

Total share-based compensation expense

 

$

7,167

 

 

$

1,445

 

 

$

12,330

 

 

$

2,620

 

Impact on basic and diluted net loss per share

 

$

0.24

 

 

$

0.05

 

 

$

0.41

 

 

$

0.09

 

Weighted average shares (basic and diluted)

 

 

30,117,819

 

 

 

28,676,666

 

 

 

29,843,966

 

 

 

28,676,666

 

Performance Shares:

During January 2014, performance share awards were granted to certain employees that provide for a maximum of 28,411 common stock shares to be issued. These shares vest over three years on the first, second and third anniversary of December 15, 2013. On each vesting date, if the Company’s closing common stock per share price is equal to $102.46 per share, one-third of the 28,411 shares will be awarded. If the Company’s closing common stock price is either lesser or greater than $102.46 per share, the number of common stock shares to be issued will be adjusted to be less than one-third of the 28,411 shares. No shares will be awarded if the Company’s closing common stock price is less than $47.53 per share at the vesting dates. The performance shares are valued on the grant date and the fair value of the performance award is equal to the market price of the Company’s common stock on the grant date. The performance share expense is recognized based on the Company’s estimate of a range of probabilities that the Company’s closing common stock price will be lower or higher than $102.46 on the vesting dates. Based on the range of probabilities, the expense is calculated and recognized over the three-year vesting period.

12

 


 

Stock Options:

The fair value of options granted to employees was estimated using the Black-Scholes Option Pricing Method (see Note 2—Significant Accounting Policies) with the following weighted-average assumptions used during the six months ended June 30, 2014 and 2013:

 

 

Six Months Ended June 30, 2014

 

 

Six Months Ended June 30, 2013

 

Dividend yield

 

0.0

%

 

 

0.0

%

Expected volatility

 

81.3

%

 

 

86.9

%

Risk-free interest rate

 

1.8

%

 

 

1.0

%

Expected life in years

 

5.85

 

 

 

5.85

 

 

Activity with respect to options granted under the 2011 Plan is summarized as follows:

 

 

 

Shares

 

 

Weighted Average Exercise Price

 

 

Weighted Average Remaining Contractual Term (years)

 

 

Aggregate Intrinsic Value                       (in thousands)

 

Outstanding at December 31, 2013

 

 

2,604,224

 

 

$

23.31

 

 

 

 

 

 

 

 

 

Granted during 2014

 

 

806,583

 

 

$

95.19

 

 

 

 

 

 

 

 

 

Forfeited during 2014

 

 

(35,000

)

 

$

58.20

 

 

 

 

 

 

 

 

 

Exercised during 2014

 

 

 

 

$

 

 

 

 

 

 

 

 

 

Outstanding at June 30, 2014

 

 

3,375,807

 

 

$

39.59

 

 

 

8.7

 

 

$

115,733

 

Unvested at June 30, 2014

 

 

2,143,635

 

 

$

56.26

 

 

 

9.1

 

 

$

47,441

 

Exercisable at June 30, 2014

 

 

1,232,172

 

 

$

10.58

 

 

 

8.0

 

 

$

68,292

 

 

At June 30, 2014, total estimated unrecognized employee compensation cost related to non-vested stock options and performance shares granted prior to that date was approximately $69.3 million and $1.7 million, respectively. This unrecognized expense is expected to be recognized over a weighted-average period of 2.5 years for stock options and 1.6 years for performance shares. The weighted-average grant date fair value of options granted during the six months ended June 30, 2014 and 2013, was $65.85 per share and $20.55 per share, respectively.

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

Grant-Date

 

Stock options

 

Shares

 

 

Fair Value

 

Nonvested shares at December 31, 2013

 

 

1,838,633

 

 

$

20.18

 

Granted

 

 

806,583

 

 

 

65.85

 

Vested/Issued

 

 

(466,581

)

 

 

10.97

 

Forfeited

 

 

(35,000

)

 

 

40.71

 

Nonvested shares at June 30, 2014

 

 

2,143,635

 

 

$

39.03

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

Grant-Date

 

Performance shares

 

Shares

 

 

Fair Value

 

Nonvested shares at December 31, 2013

 

 

 

 

$

 

Granted

 

 

28,411

 

 

 

102.46

 

Vested/Issued

 

 

 

 

 

 

Forfeited

 

 

 

 

 

 

Nonvested shares at June 30, 2014

 

 

28,411

 

 

$

102.46

 

 


 

13

 


 

Note 7—Subsequent Events:

 

In July 2014, the Company signed an amendment to the license agreement with the Licensor.  The amendment to the license agreement provides that the Company will now be solely responsible for the expenses incurred or accrued in conducting the ongoing legacy clinical trials after December 31, 2013.  These costs were previously the responsibility of the Licensor.  

In addition, under the amended agreement, annual royalties to be paid on net sales of licensed products were reduced from a tiered royalty rate structure ranging between 10 to 20 percent to a fixed rate in the low- to mid- teens and the Licensor and the Company have agreed to continue to cooperate to effect the transfer to the Company of certain records, regulatory filings, materials and inventory controlled by the Licensor as promptly as reasonably practicable.

 

 

 

.

 

14

 


 

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, 2013.

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. 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 patients with HER2 positive breast cancer, and patients with non-small cell lung cancer, breast cancer and other solid tumors that have a HER2 mutation;

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

PB357, which we believe can serve as a backup compound to PB272, and which we are evaluating for further development.

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 the licensor. During this transition period, we built up our infrastructure and assumed responsibility for the neratinib program.

The license agreement for PB272 established a limit for our expenses related to the licensor-initiated clinical trials for PB272 that were ongoing at the time of the agreement and which we refer to as the legacy clinical trials. This capped our “out-of-pocket” costs incurred in conducting the legacy clinical trials beginning January 1, 2012. The cap cost was reached during the fourth quarter of 2012 with the Licensor becoming responsible for the cost to complete the licensor legacy clinical trials.  The license agreement was amended in July 2014 whereby we became solely responsible for the costs incurred or accrued in conducting the legacy clinical trials after December 31, 2013.  The license amendment also adjusted the future royalty rate from a tiered royalty rate structure ranging between 10 to 20 percent to a fixed rate in the low- to mid- teens. Additionally, our expenses to date have been related to hiring staff, commencing company-sponsored clinical trials and the build out of our corporate infrastructure. As we proceed with clinical development of PB272 (neratinib (oral)), recognize expenses associated with the legacy clinical trials 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 continue to 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 public offerings of our common stock and sales of our common stock in private placements.

15

 


 

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 six months ended June 30, 2014 from our accounting policies at December 31, 2013, as reported in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

Summary of Expenses

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.

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, including, as of December 31, 2013, the legacy clinical trials. During the three and six months ended June 30, 2014, our R&D expenses consisted primarily of CRO costs, other clinical development costs and salaries and related personnel costs (including stock-based compensation expenses). We expense our R&D costs as they are incurred.

Results of Operations

Three Months Ended June 30, 2014 Compared to the Three Months Ended June 30, 2013

General and administrative expenses:

For the three months ended June 30, 2014, G&A expenses were approximately $3.9 million, compared to approximately $2.3 million for the three months ended June 30, 2013. G&A expenses for the three months ended June 30, 2014 and 2013 were as follows:

 

 

 

Three Months Ended

 

 

Percentage

 

General and administrative expenses

 

June 30,

 

 

Change

 

(in thousands)

 

2014

 

 

2013

 

 

2014/2013

 

Payroll and related costs

 

$

745

 

 

$

605

 

 

 

23

%

Professional fees and expenses

 

 

759

 

 

 

511

 

 

 

49

%

Facility and equipment costs

 

 

463

 

 

 

324

 

 

 

43

%

Employee stock-based compensation expense

 

 

1,363

 

 

 

443

 

 

 

208

%

Insurance and business licenses/taxes

 

 

184

 

 

 

104

 

 

 

77

%

Other

 

 

390

 

 

 

280

 

 

 

39

%

 

 

$

3,904

 

 

$

2,267

 

 

 

72

%

 

For the three months ended June 30, 2014, G&A expenses increased approximately $1.6 million compared to the same period in 2013.  Payroll and related costs increased to approximately $0.7 million for the three months ended June 30, 2014 from approximately $0.6 million for the same period in 2013 as headcount increased to 13 from nine to support our corporate growth.  Professional fees and expenses increased to approximately $0.8 million for the three months ended June 30, 2014 from approximately $0.5 million for the same period in 2013.  Professional fees and expenses consist of legal, auditing and consulting fees for compliance with the Sarbanes-Oxley Act of 2002, as amended, or Sarbanes-Oxley, and investor relations.  Facility and equipment costs increased to approximately $0.5 million as we added leased office space.  We recently leased an additional suite in our Los Angeles office and are currently in negotiations for additional office space in our South San Francisco location.   Employee stock-based compensation increased to approximately $1.4 million for the three months ended June 30, 2014 compared to approximately $0.4 million for the same period in 2013.  The increase reflects the increase in our stock price as well as the increase in the number of option grants issued to employees.  Insurance and business taxes increased to approximately $0.2 million for the three months ended June 30, 2014 compared to approximately $0.1 million for the same period in 2013 due to increased levels of insurance held by the Company and increased business taxes.  We expect G&A expenses to continue to increase moderately as we increase headcount to support anticipated growth.

16

 


 

Research and development expenses:

For the three months ended June 30, 2014, R&D expenses were approximately $35.0 million, compared to approximately $10.4 million for the three months ended June 30, 2013. R&D expenses for the three months ended June 30, 2014 and 2013 were as follows:

 

 

 

Three Months Ended

 

 

Percentage

 

Research and development expenses

 

June 30,

 

 

Change

 

(in thousands)

 

2014

 

 

2013

 

 

2014/2013

 

Outside CRO/licensor services

 

$

16,675

 

 

$

2,300

 

 

&